ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Aditya Mohan JadhavSubscribe to Aditya Mohan Jadhav

Indian Business Groups and Their Dominance in the Indian Economy

Business groups have played an important role in the development of the Indian economy by filling the institutional voids arising from weak markets and institutions. As these economic institutions developed, the need for business groups was expected to reduce. There does exist a reducing trend, but at the same time, average size and average sales of business group firms are increasing. This anomaly raises a question. Are all business groups losing their importance or is it only a few of them? Our results demonstrate that expectation of diminishing importance does not hold true for top group firms. We show that top group firms have been able to capture appropriate growth drivers resulting in economic dominance and concentration of economic power.

Does FDI Contribute to Growth?

This paper investigates if foreign direct investment contributes to the growth of industry by examining the spillover gains in the capital goods sector. It compares the performance of foreign and domestic firms in the sector between 1994-95 and 2009-10 by using the asset turnover ratio (ATO) and the return on capital employed (ROCE). The results indicate that except during the high growth period 2004-08, there is no significant difference between the ATOs of domestic and foreign firms and the ROCE of foreign firms is significantly higher than that of domestic firms. However, during this high growth period, the ATO of domestic firms is significantly higher than that of foreign firms and ROCE of foreign and domestic firms are same. Thus, the spillover effects are very slow to be realised and higher benefits from FDI have accrued to foreign firms. We do not find support for FDI as one of the key drivers for industrial growth in capital goods sector as claimed by the industry captains.
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